Ethanol producers in Brazil sold 32% less of their fuel last month than in the same month a year earlier. This weaker demand for ethanol, combined with improved prospects for the sugar cane harvest in countries such as the European Union, Thailand and India, is exerting downward pressure on sugar prices.
The Brazilian government has been hesitating for some time whether to allow the rise in global oil prices to pass through to domestic fuel prices. On Monday, February 14, the quotation for Brent oil stood at more than $95 per barrel, the highest level since September 2014. As long as gasoline prices in the country are not increased, biofuel ethanol is not competitive. Last month, demand for this fuel in Brazil fell by 32%. Weaker demand for ethanol is encouraging factories to use sugarcane to produce sugar instead of biofuel.
Expected more sugar
At the same time, the Food and Agriculture Organization (FAO) recently expressed the expectation that global sugar supplies will increase anyway. This is because yield expectations for the European Union, Russia, India and Thailand have been adjusted positively as a result of favorable weather conditions in these countries. World sugar production is estimated at 2021 million tons for the 2022/173,7 season. That is 2,2% more than one season earlier. In addition, the Food and Agriculture Organization of the United Nations predicts that sugar consumption will grow by 1,9%. This means that recovery to pre-corona crisis levels appears to have begun.
The organization does point out that the balance between supply and demand will remain tight. To meet growing demand, major sugar exporting and consuming countries need to tap into their stocks and reserves from previous harvest seasons. By the end of this season, the Food and Agriculture Organization therefore expects global sugar stocks to decline slightly again.
Downward pressure
The combination of the above factors leads to a downward trend in sugar prices. This after a long period of increases. On Tuesday, February 15, the quotation on the Intercontinental Exchange closed at €423,26 per tonne. That is the lowest level since September 2021; then the quotation reached a low of €392 per tonne. Analysts expect the downward price trend to continue for several months. After all, concerns about the sugar supply for this year are rapidly decreasing.